Odebrecht, nucleus of mega-graft scandal, tries to go clean

The contrasting currents sum up the situation for what used to be one of the most powerful businesses in Latin America as it works to move beyond an astonishing scandal that upended the political order in Brazil, brought down Peru's president and continues to have ripple effects in other nations.

This file photo taken on September 1, 2015 shows Brazil's construction giant Odebrecht president Marcelo Odebrecht during a hearing of the parliamentary committee of the Petrobras investigation in a federal court. Foto:AFP/Heuler Andrey

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Por James Grainger

Yesterday 03:53 PM

Por James Grainger

Tuesday 22 May, 2018

Por Jayson McNamara

On the sixteenth floor of the headquarters of Odebrecht, the construction company at the center of one of the largest graft scandals in history, the executive charged with stamping out corruption insists the firm has changed its ways.

Meanwhile, at the reception area downstairs, a justice official delivers the latest subpoena from Brazilian investigators to question company employees.

The contrasting currents sum up the situation for what used to be one of the most powerful businesses in Latin America as it works to move beyond an astonishing scandal that upended the political order in Brazil, brought down Peru's president and continues to have ripple effects in other nations.

“We have only one chance to change, and to change definitively,” said Olga Pontes, chief compliance officer, during an interview with The Associated Press. “We can’t make mistakes.”

While the company has made considerable efforts to change its culture, questions remain about whether the firm can regain trust, particularly abroad, after years of funnelling hundreds of millions of dollars into the pockets of politicians, elected officials, political parties and executives to win construction mega-projects in Brazil and across the region.

There is also the question of whether a company that built an empire in part by skirting the rules can now thrive while playing by them. While the company continues to function — earlier this month Odebrecht Engineering and Construction announced a US$600 million deal to build a port in Espirito Santo state — its sales have plunged by one third.

“I don’t know how Odebrecht will ever recover,” said Jose Carlos Martins, chairman of the Brazilian Chamber of Industry and Construction. “And what will they do if a competitor appears and does everything they used to do?”

In December 2016, Odebrecht and Braskem, a petrochemical subsidiary, reached an agreement with American, Brazilian and Swiss justice officials to pay US$3.5 billion in penalties in what the US Department of Justice called “the largest foreign bribery case in history.”

At that point, Odebrecht had become engulfed in Brazil’s Operation Carwash corruption investigation, making cooperation with authorities arguably its only option to avoid dissolution. In early 2016, former CEO Marcelo Odebrecht, one of the country’s richest and most powerful men, was sentenced to more than 19 years in prison.

As part of the deal, Odebrecht agreed to independent monitoring teams from the US and Brazil. More than a year into that process, Otavio Yazbek, the leader of the Brazilian monitoring group, says Odebrecht has gone from having no internal measures to fight corruption to a sophisticated compliance plan.

“They are committed to change,” said Yazbek, a lawyer and former commissioner on Brazil’s securities and exchange commission. “Odebrecht for us has become a kind of north pole for everybody who works in compliance.”

Odebrecht has also instituted anti-corruption training for all employees, ranging from interns all the way up to the new CEO, according to Pontes. The company allowed the AP to observe its online programem. Complex scenarios are presented in which employees have to think through what can constitute a bribe or influence peddling.

“Everybody is at a point where they are thinking 10 times before deciding anything, making sure not even a hair is out of place”, she said.

Last year, a group called the Global Advisory Council was established to help support cultural changes within the company. The 10-member group includes a former dean of Harvard’s Business School, an-ex chairman of the board of Shell Group and the founder of the United Nations Global Compact, which focuses on corporate sustainability.

Several Odebrecht subsidiaries have changed their names amid the turmoil, and the overall holding has shrunk considerably: 60,000 employees today versus 181,000 in 2014. In 2015, its gross revenue was US $38.9 billion, more than 30 percent higher than US $25.7 billion in 2016 and $25.6 billion in 2017.

Seventy-eight former and current Odebrecht employees have reached plea bargains with prosecutors and several investigations are ongoing. Last month, while AP reporters visited the company’s office, a subpoena was issued to interrogate other employees.

The Odebrecht family is no longer in charge of day-to-day operations, but former CEO Emilio Odebrecht, the father of Marcelo, is chairman of the board, though he is expected to step down once a new board is voted on.

Both Emilio and Marcelo, who has since been released to house arrest, are large shareholders. Odebrecht declined to divulge what percentage the family continues to own.

Kathleen Hamann, the former head of anti-corruption initiatives at the US Department of State, says the leaders of troubled companies can be drivers of change because they understand the damage that has been caused, but even in such cases there are lingering image issues.

“Odebrecht is trying to rebuild external trust with folks who have been charged still in place,” said Hamann, a former US justice official who worked on bribery cases. “I’m not sure that is doable. The question becomes: Will they realize that and step aside, or will they hang on and let the company suffer?”

In the kickback scheme that Odebrecht helped shepherd, several Brazilian construction companies formed a de facto cartel that decided who would get which contract from state oil company Petrobras.

While Odebrecht was only one of many companies involved, its bribe scheme was arguably the most sophisticated. An entire department, the Division of Structured Operations, was dedicated to distributing bribes. Using a complex system of offshore shell companies, foreign banks and encrypted messages, illicit payments were doled out via methods that ranged from overseas wire transfers to suitcases of cash. Odebrecht paid at least US$788 million in bribes going back to 2001, according to the agreement with justice officials.

The Carwash investigation launched in early 2014 has had a profound impact across Latin America. In Brazil, tens of thousands of jobs have been lost and dozens of top businessmen and politicians have been jailed, including ex-President Luiz Inacio Lula da Silva.

In Peru, President Pedro Pablo Kuczynski resigned in March amid allegations that Odebrecht paid his consulting firm US$780,000 a decade ago. Kuczynski denies wrongdoing. Hundreds of charges have also been filed against officials in Colombia, Panama, the Dominican Republic, Ecuador, Paraguay and Argentina.

It isn’t the first time that Odebrecht has been accused of stuffing pockets to win favours. Bribery cases against the company in Brazil go back to the early 1990s.

“I am not going to say that we are an innocent company,” he told the newspaper Folha de S.Paulo. “To survive in this field, I did (pay bribes). But if you ask me when and who, I will never tell you.”

Founded in 1944, Odebrecht built close relationships with politicians in the 1950s, when the board of Petrobras was comprised of military personnel from Bahia state, where Odebrecht had its headquarters for decades. During Brazil’s 1964-1985 military dictatorship, the company focused lobbying efforts on executives and government agencies. By the 1970s, it had major projects like building a nuclear plant and the Galeao international airport in Rio de Janeiro.

These days, the company is working to keep its head above water. Last year, Odebrecht sold its Chaglla hydroelectric project in Peru for US$1.4 billion. It’s also trying to secure loans to service a US$144 million bond payment.

Jermyn Brooks, a member of the advisory council, said Odebrecht has clearly passed the first phase of a major cultural shift. However, he said the anti-corruption training has to deepen in the company.

“Take an engineer who has been at Odebrecht three to five years. Does he believe in what the top management is saying?” said Brooks, chair of Transparency International's business advisory board. “And then what happens when he is working in another country and somebody says, “‘Come on, Odebrecht always gives us a little extra.’ Will he be prepared for that?”
Ponte, sitting in a conference room with aspirational words on the wall like “Rebranding” and “Attitude,” feels they will be.